Ratio To Shutter Flagship Hedge Fund

Aug 23 2011 | 10:49am ET

Ratio Asset Management, facing redemptions from two of its biggest investors, is closing its largest hedge fund and returning capital to clients.

The London-based firm, in a letter to investors earlier this month, wrote that "the catalyst" for the decision to liquidate the Ratio European Fund "has been fund redemptions by two of our largest long-standing investors and in light of this and continued market uncertainty, we believe this is the best course of action for our investors."

The European Fund managed the lion's share of Ratio's assets, which stood at about US$180 million earlier this year. That's down from US$600 million in 2007, when Ratio, like many hedge funds, began to suffer from major redemptions during the financial crisis.

Ratio's European Opportunities Fund, launched last year with long/short veteran Tom Tjia at the helm, will remain open. That fund currently manages US$19 million, most of it Tjia's own capital, Alice Squires, Ratio's investor relations officer, told FINalternatives.

Ratio European is down 4% this year but has returned more than 25% since its launch in early 2006.

While redemptions may have been the catalyst for Ratio's decision, firm founders and fund managers Ralph Jainz and Jonathan Sharpe admitted that they were not happy with the opportunities currently available to the hedge fund. The two wrote that "the problems currently affecting Europe… are no closer to a resolution than they were a year ago," and "this year stock selection has not proved profitable."

"It is hard to see the situation changing and as a result of our very bearish outlook and the potential impact of running a fund with much-reduced [assets under management] and a very concentrated investor base, we believe it would be prudent to return assets to our investors and sit on the sidelines."

But not for too long; Jainz and Sharpe wrote that they "fully intend to return to the fray."

"If the world develops as we expect over the next six to 12 months, there will be some remarkably attractive opportunities to invest in very high-quality companies at great prices."

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